Dawes Min. Co. v. Callahan

• Decision Date: 08 May 1980
• Docket Number: No. 59526,59526
• Citation: 267 S.E.2d 830,154 Ga.App. 229
• Parties: DAWES MINING COMPANY v. CALLAHAN.
• Court: Georgia Court of Appeals

Page 830

267 S.E.2d 830

154 Ga.App. 229

DAWES MINING COMPANY v. CALLAHAN.

No. 59526.

Court of Appeals of Georgia.

Submitted March 3, 1980.

Decided March 20, 1980.

Rehearing Denied April 3, 1980.

Certiorari Granted May 8, 1980.

Steven E. Scheer, Savannah, for appellant.

Kenneth S. McBurnett, Pembroke, Charles H. Brown, Statesboro, for appellee.

QUILLIAN, Presiding Judge.

This is a suit for damages by an employee against an employer for breach of an agreement to provide health insurance.

The evidence shows that appellee Callahan was first employed by appellant Dawes Mining Co. in 1957 as an hourly wage earner. A few years later Callahan started participating in Dawes' group health insurance program. The insurance paid for medical and hospital expenses incurred by Callahan and his dependents, with half the premiums paid for by Callahan by deductions from his pay and the other half by Dawes. Dawes processed employee claims under the policy to the insurer. In 1975, without consulting the employees, Dawes changed coverage from the existing insurer to another insurance company. The employees were told of the change and to come to the office to sign up with the new insurer. The local representative of Dawes and a representative of the new insurer were present in the office. The insurer's representative said the coverage was the same as under the former policy and said nothing about exclusion of coverage for pre-existing illnesses. Callahan, who could not read but could sign his name, signed an application for insurance as directed by the insurer's representative. Some weeks later he received an insurance card as evidence of the insurance. Unknown to Callahan at the time the new insurance master policy had a provision which prohibited payment of medical expenses incurred as a result of pre-existing illnesses until the policy had been in effect a certain period of time. Within that excluded period, Callahan's wife was hospitalized for a pre-existing illness and, after six months and several hospitalizations, died. After mistakenly paying some of the expenses and demanding repayment, the new insurer invoked the pre-existing illness exclusion and refused payment of any of the medical and hospital expenses, which were in excess of $14,000. Having no recourse against the insurer, Callahan brought this suit against Dawes for breach of an agreement, incident to his employment, to provide health insurance coverage. The jury returned a verdict for Callahan for an amount equal to the medical and hospital expenses owed, Dawes' motions for judgment notwithstanding the verdict and new trial were denied, and Dawes appeals. Held :

1. Dawes claims that the verdict and judgment are not supported by law or evidence because there is no evidence that Dawes agreed to pay any medical or hospital expenses. This argument does not address the issue, which is whether Dawes was liable for damages because Dawes did not maintain insurance coverage which would have paid the expenses.

Did Dawes have any obligation to Callahan concerning a possible lapse in coverage when the insurers were changed? This appears to be a question of first impression in Georgia. A body of law has developed in other jurisdictions which says that if an employee contributes in paying the premium on group insurance carried by the employer, the employer has an obligation to attend to the policy and inform the employee of anything required to keep the insurance in effect. Neider v. Continental Assur. Co., 213 La. 621, 35 So.2d 237; McGinnis v. Bankers Life Co., 39 A.D.2d 393, 334 N.Y.S.2d 270; Van Ostrand v. Nat. Life Assur. Co., 371 N.Y.S.2d 51, 82 Misc.2d 829; 1 Appleman, Insurance Law & Practice, § 43; 44 Am.Jur.2d § 1878.

"Group insurance is a comparatively new form of insurance, and each problem presented to this court concerning it should be approached with the purpose of giving to it every legitimate opportunity of becoming a social agency of real consequence. It has been pointed out that the purpose of this form of insurance is to provide the employer with a means of procuring insurance protection for his employees and their families at the lowest possible cost, and that the employer's making this form of insurance available to his employees results in the creation of good will between the employer and employee, enables the employees to carry a larger amount of insurance than they could otherwise, and helps to attract and hold a permanent class of employees. (Cit.) These results could be defeated if the employer, by poor administration of the insurance, could be instrumental in causing the insurance to become unavailable to the employee. We feel that the employer owes to the employee the duty of good faith and due care in attending to the policy, and that the employer should make clear to the employee anything required of him to keep the policy in effect . . ." Neider v. Continental Assur. Co., 213 La. 621, 631, 35 So.2d 237, 240, supra.

"Group insurance is concerned with the rights of a definite insured the employer and employees who are 'in the position of third party beneficiaries,' . . . 1 Appleman, Insurance Law & Practice, § 45, p. 66, § 41, p. 52. Normally the employer is neither an insurer nor a guarantor of payment. 'This does not mean, however, that the employer may not have a liability imposed upon him either by reason of his actions or by reason of his failure to act, if the employee has been adversely affected thereby.' Id. § 43, p. 57. He may, for example, be liable for failure to perform a contractual obligation to furnish group insurance . . . Id., § 43, pp. 57-58." Shannon v. United States, 417 F.2d 256, 259 (5th Cir. 1969).

"We do not hold that an employer-policyholder has no right to terminate or modify a group health and accident policy it has purchased for its employees. (Cits.) We hold that an employer policyholder of a group health and accident policy is obligated to inform the insured employee of the termination or modification of benefits...